Jobless claims highest since April

Friday, September 13, 2002

By Martin Crutsinger, The Associated Press

WASHINGTON -- The trade deficit jumped to a record $130 billion while the number of newly laid-off workers seeking unemployment benefits rose to the highest level since April, the government said Thursday, providing fresh evidence of the headwinds battering the economy.

The Labor Department said new claims for unemployment benefits totaled 426,000 last week, 19,000 more than the previous week. It had not been that high since the week of April 20.

Jobless claims have risen in four of the past five weeks. Analysts viewed that as an indication that the recovery from last year's recession remains tenuous and may lead the Federal Reserve to cut interest rates further.

"The late summer swoon in the labor market raises the possibility that the Fed may ease interest rates at the September or November meetings," said Bruce Steinberg, chief economist at Merrill Lynch.

Federal Reserve Chairman Alan Greenspan, testifying before the House Budget Committee, gave no hint whether the Fed might cut rates when policy-makers meet Sept. 24. The central bank's own survey of business conditions found "slow and uneven economic growth" in much of the country.

Greenspan said the "depressing effects" from a variety of shocks, including the Sept. 11 attacks and the stock market's drop, still weighed on the economy.

Record trade deficit

The Commerce Department reported that the deficit in the current account, the broadest measure of trade because it includes not only goods and services but also investment flows, rose 15.6 percent in the April-June quarter to a record $130 billion. That compares with $112.5 billion in the first quarter, also a record.

Industries lobbying the Bush administration to abandon its support for a strong dollar said the big jump in the deficit was further evidence of how much the high-flying dollar has hurt U.S. companies.

Frank Vargo, vice president for international affairs at the National Association of Manufacturers, said that three-fourths of the current account deficit could be blamed on an overvalued dollar. He said while the dollar has declined by about 10 percent in recent months against a marketbasket of other currencies, the dollar needs to fall by an additional 20 percent to make U.S. goods fully competitive again on world markets.

"We estimate that 750,000 manufacturing and agricultural jobs have been lost over the past two years principally because of the overvalued dollar," Vargo said.

He said the weakness in manufacturing has continued despite the economy's return to growth this year. Manufacturing employment fell by 68,000 in August alone, the largest drop since January, the government said last week in a report that showed the overall unemployment rate dropped to 5.7 percent last month.

The Bush administration has resisted calls to abandon the Clinton administration's strong-dollar policy. Officials feared that any perceived switch could spook currency traders into pushing the dollar down much more sharply and thus jeopardize the foreign investment the country needs to finance the record current account deficits.

Private economists have said that at some point the dollar will have to decline further in value to boost the sale of American products on overseas markets and narrow the current account deficit. At 5 percent of the total economy, that deficit is at a level they view as unsustainable over the long term.

In the second quarter, the deficit in goods increased to a record $122.6 billion, from $106.4 billion in the first quarter. That offset a rise in a surplus in services, such as airline travel, which rose to $12 billion, compared with $10.9 billion in the first quarter. The deficit in investment flows increased to $6.3 billion in the second quarter, up from a deficit of $946 million in the first quarter.

The category that includes payments the government makes in foreign aid to other countries narrowed in the second quarter to $13.1 billion, down from $16 billion in the previous quarter.